The New Zealand dollar fell against the greenback and may extend its slide on speculation drought in key farming areas will weigh on an economy that may have reached its cyclical peaks, while the Federal Reserve is expected to affirm interest rates are set to rise in the US.
The kiwi traded at 75.11 US cents at 5pm in Wellington, down from 75.18 cents at the New York close on Friday. The trade-weighted index fell to 77.91 from 78.12 on Friday.
US Federal Reserve chair Janet Yellen is scheduled to give her semi-annual testimony to US lawmakers this week and may show the Fed expects to start hiking interest rates from near zero in the world's largest economy by about the middle of the year. Meantime, Fonterra Cooperative Group is expected to provide an update on its milk payout forecast, with some expectation it will lift its estimate given the rebound in the price of milk powder in recent auctions. Still, dairy price increases have been driven by a supply squeeze in the face of drought.
"On a fundamental basis, the positive beat in New Zealand data is unlikely to support further upside" in the kiwi, Raiko Shareef, currency strategist at Bank of New Zealand, said in a note. "The broader picture is still one of a country that has reached its cyclical peak."
On dairy prices, he said: "Keep in mind that part of the increase in prices is because of the drought conditions in NZ. In real GDP terms, this will be an unambiguous negative for NZ."
